Entrepreneurial Financing, Advice, and Agency Costs
Abstract"We develop a model to study the interplay between advice and agency costs in entrepreneurial financing. We demonstrate a tension between the entrepreneur's motivation for effort and the investor's willingness to finance the project. Advice to the entrepreneur exacerbates this tension. Consequently, optimal financing contracts may involve full, partial, or no advice. With partial advice, information flows need to be controlled carefully. Such control is better when advice and finance are integrated as observed by venture capitalists." Copyright (c) 2009, The Author(s) Journal Compilation (c) 2009 Wiley Periodicals, Inc..
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 18 (2009)
Issue (Month): 3 (09)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Roland Strausz, . "Entrepreneurial Financing, Advice, and Agency Costs," Papers 022, Departmental Working Papers.
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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